In the long run, the _____ adjusts to equilibrate the quantity of money supplied with the quantity demanded.

Question

Quizplus · Accepted Answer

The price level adjusts in the long run to equilibrate the quantity of money supplied with the quantity demanded. This is known as the quantity theory of money. When the supply of money increases, there is more money chasing the same amount of goods and services, which leads to an increase in the price level. Conversely, when the supply of money decreases, there is less money chasing the same amount of goods and services, which leads to a decrease in the price level. Adjustments in real interest rates and nominal interest rates are also possible in the short run, but in the long run, the price level is the primary variable that adjusts to changes in the money supply.

In the Long Run, the _____ Adjusts to Equilibrate the Quantity